20 VC 085 Mark Suster @ Upfront Ventures on Being A Super Entrepreneur Driven VC

In this episode of "20 minutes VC," host Harry Stebbings interviews Mark Suster, Managing Partner at Upfront Ventures and a former entrepreneur. Suster shares insights from his journey transitioning from a programmer to entrepreneur, and then to a VC, emphasizing the importance of understanding programming and sales in business. He discusses how too much funding can stifle creativity, the ideal 18-month capital runway for startups, and the significance of investor-founder relationships. Suster also touches on his investment strategy, focusing on lines of growth over time rather than isolated data points, and his preference for underhyped markets like Agtech. He highlights the need for entrepreneurs to build networks and the potential pitfalls of the glamorized startup culture. The interview concludes with Suster's views on the SaaS sector, his reading recommendations, and his latest investment in MeToo Networks, aiming to create a leading Latino digital media company.

• Mark Suster is the managing partner at Upfront Ventures, joining in 2007.
• He has entrepreneurial experience, founding two companies: Coral (acquired by Salesforce.com) and Build Online (acquired by Sword Group).
• Mark is known for his influential venture capital blog, "Both Sides of the Table."
• Mattermark Daily, a newsletter curated by Nick Frost, often features Mark Suster and is highly recommended by the host, Harry Stebbings.

"Mark is managing partner at Upfront Ventures, which he joined in 2007, having previously worked with Upfront for nearly eight years as a twotime entrepreneur."

This quote introduces Mark Suster's current role and his entrepreneurial background, highlighting his experience in the industry.

"Mark is also the writer of one of my favorite VC blogs, both sides of the table, which really is a centrepiece to the whole VC community and is a must read for all interested in entrepreneurship and VC."

This quote emphasizes the significance of Mark Suster's blog in the venture capital community, suggesting its importance for those interested in the field.

• Mark Suster began as a programmer and worked at Anderson Consulting (now Accenture) for nine years.
• He advises that entrepreneurship is not for everyone, but those interested should start early.
• Suster emphasizes the importance of understanding programming and sales regardless of one's role in a company.
• His first venture was at the age of 31, after which he ran two software companies, both of which were acquired.
• He transitioned to venture capital when one of his backers invited him to join the industry.

"I started my life as a programmer. I was a developer in middle school, I was a developer in high school."

Mark Suster recounts his early interest in programming, setting the stage for his career in technology and entrepreneurship.

"Entrepreneurship is not cut out for everybody, but if you want to give it a try, it's infinitely better to start earlier."

This quote highlights Mark Suster's advice to aspiring entrepreneurs about the importance of starting early in their careers.

"There are two skills you're going to need. Minimum two skills you're going to need. You need to take some programming course... and the second piece of advice that I always give people is to get some sales experience."

Mark Suster outlines the two essential skills for entrepreneurs: programming knowledge and sales experience, explaining why they are fundamental to success.

"I ran two software companies. The first was based out of England, the second was based out of Silicon Valley. And having done it twice, having sold both companies, having seen what that was like, one of my backers offered to bring me in as a VC..."

This quote describes Mark Suster's entrepreneurial journey and how his success led to an opportunity in venture capital.

• Mark Suster believes that being an entrepreneur provides an advantage in venture capital.
• Understanding the entrepreneurial journey allows VCs to be better coaches and mentors.
• While not all successful VCs have been entrepreneurs, Suster sees it as a strong differentiator.

"I think the hardest thing is if, look, all kinds of people can succeed as vcs, and I think one of the most successful vcs of our era, Fred Wilson, wasn't an entrepreneur. So really anyone can succeed. But I feel like you're at a great advantage if you've been an entrepreneur..."

Mark Suster acknowledges that while anyone can succeed as a VC, entrepreneurial experience offers a significant advantage in understanding and guiding entrepreneurs.

• The conversation is set to discuss a startup team's journey through a funding round.
• No additional details are provided in the transcript regarding the funding story.

"And today we're going to run through kind of a funding story. So the story starts with a team at a startup looking to enter a round"

This quote sets up the topic for the next part of the conversation, which is about a startup team's experience with funding.

• Overfunding can lead to a lack of creativity and the development of bad habits.
• Excessive capital can cause companies to take shortcuts and mask underlying problems.
• Constraints can be beneficial by forcing a sense of urgency and focus.
• Urgency leads to better focus and productivity in project delivery.

"Too much capital creates a certain laziness and people create shortcuts. And that, I think, leads to making a lot of mistakes."

This quote highlights the negative consequences of having too much money too early in a startup's life, suggesting that it can lead to complacency and poor decision-making.

• The ideal amount to raise is enough to cover 18 months of operation.
• Founders should account for the time it takes to raise capital and ensure they have a buffer.
• Starting to raise funds with six months of capital left is advisable to avoid running out of money.
• The fundraising process is continuous and should be approached with a long-term perspective.

"The ideal amount of capital, if you can raise it, is 18 months."

Mark Suster explains that 18 months of capital is ideal, giving startups enough time to prove their value before needing to raise more funds.

• Fundraising is an ongoing process; founders should always be in fundraising mode.
• Building and maintaining investor relationships is crucial for future fundraising success.
• Trust with investors is built over time and cannot be rushed or manufactured.

"I always say Abr always be raising. Just so you know that I live what I preach. This morning I had two meetings, one over the telephone, one in person with investors in my fund."

Mark Suster emphasizes the importance of continuously engaging with investors, even when not actively seeking funds, to build trust and rapport.

• Different stages of companies require different levels of engagement.
• More established companies might only need quarterly board meetings and monthly check-ins.
• Early-stage companies should have more frequent, possibly monthly, in-person meetings.

"An early stage company I want to see in person every single month."

Mark Suster outlines his expectations for engagement frequency with early-stage companies, indicating the need for closer oversight and support.

• Upfront Ventures has a $280 million fund for 2015.
• They allocate half for initial investments and half for follow-on investments in the best deals.
• The fund aims to invest over three years, with each partner responsible for a portion of the annual investment.
• Upfront Ventures focuses on seed to Series A rounds with average investments of $3 to $3.5 million.
• Each partner makes two to three deals per year, focusing on entrepreneur-driven investments.

"We think about if I take $240,000,000 of it, and I say what I really want to do is invest half of the fund into companies and reserve the other half of the fund to follow on my best deals."

Mark Suster explains the investment strategy of Upfront Ventures, highlighting their approach to primary and follow-on investments.

• Investors look for entrepreneurs with a deep understanding of their market.
• Entrepreneurs should exhibit tenacity, leadership, and the ability to attract a strong team.
• The ability to navigate challenges and pivot effectively when faced with competition is crucial.

"But I'm super entrepreneur driven. It's something about that Genesequa character of the individual, that they know their market better than most."

Mark Suster describes the entrepreneurial qualities that excite him as an investor, emphasizing the importance of character and market knowledge.

• Mark Suster emphasizes the importance of intangible qualities in founders when investing in seed or A round startups.
• Traction is typically a consideration for later B round investments, not the early stages Mark focuses on.
• He assesses founders' abilities to handle various scenarios and their responsiveness, thoughtfulness, and tenacity.

"I'm a seed or a round investor. So I'm usually not betting specifically on traction, which tends to be more of a b round activity." "There's all these intangibles that I'm trying to judge."

The quotes highlight Mark Suster's focus on the personal attributes of founders rather than just the traction of their startups when considering early-stage investments.

• Mark Suster advises entrepreneurs to understand their investors by interacting with them over time.
• He believes in investing in "lines, not dots," meaning he prefers to observe a pattern of performance and behavior over time rather than a single instance.
• Building a relationship with investors allows entrepreneurs to assess if the investor is responsive, helpful, and respectful—crucial for a long-term partnership.
• Choosing the wrong investor can be a significant setback for entrepreneurs, as there is no "divorce clause" from investors.

"I invest in lines, not dots." "Is this someone I want to do business with?"

The quotes explain the metaphor Mark uses to describe his investment philosophy, emphasizing the importance of observing an entrepreneur's journey over time to make an informed decision about their potential for success.

• Mark Suster recommends entrepreneurs to engage in "50 coffee meetings" as a strategy to network with other entrepreneurs and investors.
• This approach involves meeting one entrepreneur per week to learn about their experiences, which can lead to introductions to their investors.
• The best introductions to investors come from CEOs of companies in which the investors have already invested.
• Building these relationships early is crucial as it allows entrepreneurs to earn the right to be introduced to potential investors.

"50 coffee meetings is committing yourself just one time per week for a year." "The single best introduction is a portfolio company CEO."

These quotes provide practical advice for startup founders on how to effectively network and create opportunities to meet potential investors through a structured and consistent approach.

• Mark Suster has a preference for investing in sectors he is familiar with, such as SaaS and data processing.
• His background in building software companies for ten years influences his attraction to the SaaS sector.
• He also has a keen interest in video-related technologies due to his location in Los Angeles and the potential for disruption in the video industry.
• Mark observes that investment trends can fluctuate, with different sectors becoming popular at different times, and he seeks underhyped markets to avoid the competition of chasing hot trends.
• Agtech is an example of an underhyped market that Mark's firm has invested in due to its relevance to the future of humanity.

"Anything in the SaaS space, it's more attractive to me because I know how to be more helpful." "I'm trying to find underhyped markets, things that people are less interested in."

The quotes reflect Mark's investment strategy of focusing on sectors where he has expertise and can add value, as well as his approach to identifying and investing in emerging markets with long-term potential.

• Harry Stebbings discusses with Mark Suster about his approach to investing in specific industries.
• Mark Suster emphasizes the importance of discretion in the early stages of sector investment.
• He explains that by not discussing their interest publicly, they avoid influencing the market prematurely.
• After securing investments, they become more vocal to share their involvement and insights.

"And for three years we started meeting companies in the sector and we didn't talk about it publicly because we didn't want to encourage the market."

This quote highlights the strategic decision to keep investment interests private to avoid market speculation and premature hype.

• Mark Suster reflects on his career achievements.
• He identifies the sale of Maker Studios to Disney as a pinnacle moment in his career.

"I'd say probably selling maker studios to Disney so far has been my career highlight."

This quote succinctly captures Mark Suster's most notable career achievement, indicating its significance in his professional journey.

• Mark Suster shares his concerns about the current state of Silicon Valley and the tech industry.
• He worries about the trendiness of startups, which leads to an oversaturated market.
• He notes the presence of too many companies, too much money, and individuals not genuinely suited for entrepreneurship.

"I think we've returned to a moment where startups in Silicon Valley and tech have become fashionable and everyone wants to do it which means you're going to have too many companies, too much money, and too many people who aren't truly entrepreneurs, kind of clouding the market for everybody else."

The quote expresses concern over the glamorization of the tech startup culture, which may lead to a cluttered and inefficient market.

• Mark Suster discusses his favorite book and its impact.
• "The Accidental Superpower" by Peter Zeihan is highlighted for its insights into world order.
• The book's focus on topography, strategic advantages, and demographics as determinants of world order is particularly compelling to Suster.

"My favorite book that I read recently, which is also my favorite that I've read over the last five years, is the accidental superpower."

This quote reveals Mark Suster's current favorite book and suggests its profound influence on his understanding of global dynamics.

• Mark Suster identifies Fred Wilson as a thought leader he admires in the industry.
• He appreciates Wilson's thoughtfulness and resistance to following trends.

"Thought leader of the know, I've always looked up to Fred Wilson a great deal."

The quote underscores Mark Suster's respect for Fred Wilson's ability to provide sound advice without being influenced by the prevailing trends in the industry.

• Mark Suster expresses his views on the lean startup methodology.
• He supports the idea of constraints but criticizes the "fail fast" mentality for promoting a culture of quitting.

"I love the concept of people trying to have constraints on an early business."

This quote conveys Mark Suster's appreciation for the lean startup approach, particularly the aspect of operating within constraints.

• Mark Suster challenges the romanticized view of entrepreneurship.
• He describes entrepreneurship as stressful, difficult, and often not economically rewarding.
• Suster believes passion for the product or market is essential, not just the pursuit of money.

"That it's fun and exciting and that it's an adventure. And that for most people, it's economically your best alternative."

The quote dispels common myths about entrepreneurship, emphasizing the reality of its challenges and the necessity for genuine passion.

• Mark Suster shares his preferred reading materials, focusing on depth and insights.
• He enjoys Fred Wilson's blog for quick updates but seeks deeper insights from other sources.
• Suster appreciates Ben Evans's newsletter, Chris Dixon's writing, and Tom Tungus's data-driven posts.

"I love reading Chris Dixon. When he writes, he writes less often, but he has a way of contextualizing issues in a much more concise version than I do."

This quote highlights Mark Suster's preference for reading materials that offer substantial insights and contextual understanding of issues.

• Mark Suster discusses his most recent public investment.
• MeToo Networks aims to be a leading Latino digital media company.
• Suster outlines the significant demographic and consumption data that underpin the investment decision.

"We're trying to build the first ever proper latino media on digital media company."

The quote explains the strategic intent behind the investment in MeToo Networks, aiming to capitalize on a growing and influential demographic.

• Harry Stebbings and Mark Suster express mutual gratitude for the opportunity to share insights.
• Stebbings thanks Sharon Weinbart for introducing him to Suster and Suster for his advice and guidance.
• Stebbings also recommends his listeners to check out relevant blogs and newsletters for further learning.

"What an incredible interview that was with Mark."

This closing statement by Harry Stebbings wraps up the interview with a note of appreciation for the insights and knowledge shared by Mark Suster.